XLP, the Consumer Staples Select Sector SPDR ETF, has extended its recovery from the bearish positioning peak of early April — and the borrow market is now confirming that the pressure has genuinely eased.
The short unwind that was accelerating when last reported has continued. Short interest as a percentage of the float has dropped further to 15.9%, down from 16.5% a week ago and well below the ~19% peak reached in early April. The one-month decline is now nearly 17%. That is a material retreat: roughly 7.2 million shares of short exposure have been covered since the April highs. The direction is clear — whatever macro-overlay or defensive-hedge trade drove shorts into XLP through the tariff-driven turbulence of late March and April has been substantially reduced.
The more significant development this week is the sharp loosening in the borrow market. Just days ago, availability was near fully consumed — the lending pool was essentially exhausted, with availability running at single-digit percentages between May 7 and May 14. That condition has now reversed sharply. Availability has jumped to 73.6%, a more than fivefold increase in a week, meaning there are now roughly 21 million shares available to borrow against 30.7 million already out on loan. Cost to borrow has also fallen — from a mid-month reading above 0.80% to 0.61% today, a decline of nearly 25% over the week. Taken together, the borrow market has moved from acutely tight to merely firm in the space of a few sessions. That is consistent with covered shorts returning stock to the lending pool rather than new borrowers adding to the pile.
The ORTEX short score at 67.1 remains elevated in absolute terms — placing XLP firmly in the upper tier of the short-score distribution — but it has drifted lower all week from 68.6 on May 7. The score's direction matters as much as its level here. A short score declining while short interest falls and availability improves paints a coherent picture: the bearish overlay is receding, not accelerating. Options positioning is broadly consistent. The put/call ratio at 5.28 is structurally high — this is a heavily put-protected ETF by nature — but the z-score against the 20-day mean is nearly flat at -0.10. The market is not adding incremental downside protection; it is simply maintaining its usual defensive posture.
On the price side, XLP has gained 2% over the past week to $86.09, adding to a 4.4% rebound over the past month. The ETF's defensive character means it rarely leads a risk-on move, but the price action alongside the short unwind suggests reduced macro-hedging demand rather than a sector-specific re-rating. Institutional flow from Q1 filings shows mixed signals from the top holders: Morgan Stanley and JPMorgan both added to positions, while Goldman Sachs trimmed by roughly 2.6 million shares and Citigroup made a much larger reduction of over 17 million shares — though the Citi figure likely reflects changes in prime brokerage or managed account activity rather than a directional view.
What to watch from here is whether the short score continues its gradual drift lower or stabilises — and whether the improvement in borrow availability holds or proves temporary as the market digests the next macro catalyst.
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